No lease agreements, last month or security deposits

[Brian Davis]

I am closing on a 5 family very soon. It's my first buy and hold. All of the tenants are TAW with no lease agreements in place. There are no security deposits and no last months rent being held and the rents are well below market rents. My question is, what would be your strategy in getting at least last months rent from each tenant at the same time implementing a rent increase and having each sign a TAW. Would you just put it all on the line or would you structure a plan to have the last months rent paid over a certain period of time. They appear to be great tenants and we want to be reasonable with them. Many of them have been renting for 8 years plus. Any advice is greatly appreciated.

[Bettina F.]

We bought a 6 unit building in 2013.   We had a mix of tenants on M2M and one year leases, which were fill-in-the-blank stationery store leases.  Some tenants had paid SD, some were supposed to "clean up" their apartment on their own at move-in.  We received  NO move-in check lists for damages from the seller.  

We sent a new owner letter informing the tenants that their building had changed hands and with our new contact information.  We informed them in this letter that we would be meeting with each tenant in the coming 2 weeks to go over our company's rental agreement and do a maintenance assessment.  We kept the lease terms/rents the same (for those on leases) everyone else got a 60 day notice of rent increase right in the new rental agreement.  (Our state only requires 15 days notice, so this was very generous.)   We implemented our company's rules and policies.  There was a little grumbling, but no one left.  Rents went up 5%.   We did end up with a HUGE pick list of broken appliances and other small items that needed to be fixed, so we were very busy and re-invested all profits for the first year.  We also remodeled the common area laundry and upgraded landscaping.  

As the inherited tenants moved out, we upgraded individual units, increased rents and upgraded tenants.  We also started enforcing rental agreement terms and gave notice to some tenants.  We were able to control turnover so we were only remodeled one apartment at a time.   We institute an annual small rent increase for long term tenants, and increase each unit to market with turnover, while remaining very competitive.   Being a hard-*** LL in the beginning has now paid off in ease of management.   We decided that dealing with chronic late payers was not worth our time and effort, so after one late pay, we issue a 30 day notice.  We decided not to fear turnovers -- all our remodeled units have Allure flooring and standard paint colors and are easy to turnover.  Tenant management has gotten MUCH easier as we are able to screen, select and place our own tenants.  The building now cash flows $4000 a month.